Financial difficulty can happen at any point and can affect anyone at certain points in their lives. However, for some, it is harder to prevent and can lead to lasting damage to the credit score. But could this stop you from gaining access to emergency funding in the future?
Negative Impact On Credit Score
One of the biggest impacts that financial difficulties can have is on your credit score. The more financial difficulty that you suffer over a prolonged period, the more likely this is to affect your credit score in the long term. If you are unable to make repayments or you fall behind on rent for office space, this can slowly begin to reduce your credit rating. Therefore, it is important to make your lender or landlord aware of any repayments that you are likely to miss and discuss the repayment method. Though this will still have a small effect on your credit score, moving the repayment date will prevent you from missing this in the future. This will then allow you to begin repairing your credit score and improve financial stability.
Outstanding Debt Can Reduce Trustworthiness
In addition to the negative impact that debt can have to your credit score, this can also affect your trustworthiness in the eyes of a lender. Though there are still initial eligibility and affordability checks, it is important to note that outstanding debts will be available for the lender to see when they perform a hard check on your credit score. Though this will not prevent you from applying for a loan, this could limit your chances of being accepted. Therefore, those that are in need of emergency funds commonly opt for large loans for bad credit as this provides them with the funds they need to help them out of financial difficulty with a higher acceptance rate for those that have experienced financial difficulty in the past.
It Can Be Reversed
If your credit score has been negatively affected, it is important to remember that this can be reversed in the long term. Whether this is by paying all your debts back on time or correcting any incorrect information, this can all help improve your credit score as well as your financial stability in the future. This positive movement on credit score will make it easier than ever for you to apply for mortgages and personal loans should you need to in the future. This will ensure that you pass eligibility checks as well as affordability checks and are secured for the loan type that you are looking for should you require it.
You Will Be Able To Borrow Less
Though bad credit does not always affect your ability to be accepted for loans, it can affect the amount that you are able to borrow. Whether it is a secured loan or an unsecured loan you are applying for, if the lender thinks that you are a financial risk then they could limit the amount that you are able to borrow. Though this does not always occur, it is important to bear in mind as this could limit you when it comes to applying for a loan in times of financial difficulty in the future.
Though a small borrowing amount may be all that you need at this time it is important to monitor the APR and loan term. This is because this will determine whether or not you can pay the loan back in full. By calculating the monthly repayments beforehand and choosing a loan that you can afford, can look good on your credit score and show to lenders that you are actively working to positively impact your credit score.
Guarantor Loans
If you are really struggling to get financial aid during this time, then you may be left with a guarantor loan. This can be used for mortgages as well as personal and secure loans and is an agreement between the lender, you, and your guarantor. As a guarantor, you are responsible for repaying the loan back in full should the borrower be unable to do so. Though this does benefit the borrower, this is a risk for the guarantor. In addition to this, the guarantor needs to be financially stable enough to pay back the loan if you are unable to, meaning that you both have to be completely committed.
With this in mind, there are a number of ways that you can still gain access to emergency financial aid regardless of the current state of your credit score, however, it is important to calculate costs and assess budgets beforehand.
